Paper Corp. purchased 70% of the outstanding shares of Sand Ltd. on January 1, Year 2, at a cost of $84,000. Paper has always used the equity method to account for its investments. On January 1, Year 2, Sand had common shares of $50,000 and retained earnings of $30,000, and fair values were equal to carrying amounts for all its net assets, except inventory (fair value was $9,000 less than carrying amount) and equipment (fair value was $24,000 greater than carrying amount). The equipment, which is used for research, had an estimated remaining life of six years on January 1, Year 2. The following are the financial statements of Paper Corp. and its subsidiary, Sand Ltd., as at December 31, Year 5: Cash Accounts receivable Note receivable Inventory Equipment (net) Land Investment in Sand Bank indebtedness Accounts payable Notes payable Common shares Retained earnings Sales Management fee revenue Equity method income from Sand Interest income Gain on sale of land Cost of sales Research and development expenses Interest expense Miscellaneous expenses Income taxes Net income BALANCE SHEETS At December 31, Year 5 S Paper Sand $ 10,000 36,000 25,000 45,000 66,000 44,000 220,000 76,000 155,000 30,000 110,250 $587,250 $230,000 $ 90,000 S 50,000 60,000 45,000 150,000 50,000 252,250 120,000 $587,250 $230,000 INCOME STATEMENTS For the year ended December 31, Year 5 Paper Sand $798,000 $300,000 24,000 1,050 3,600 25.000 823,050 328,600 480,000 200,000 40,000 12,000 10,000 106,000 31,600 80,000 34,000 716,000 277,600 $107,050 $ 51,000 Page 355